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by Shaun Richards

Some days the news really rather drives itself and this morning we have a new peak for UK inflation, or at least the version targeted by the Bank of England.

The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to July 2022, up from 9.4% in June.

There is something symbolic in the fact that on this measure we are now in double digits. Also that means that it is now more than five times the level that the Bank of England is supposedly targeting. There is an enormous gap between its response and the number above.

This month we have raised our interest rate to 1.75%.

In total, since December 2021, we have increased our interest rate from 0.1% to 1.75%.

So their interest-rate is some 8.35% below the present inflation rate.Plus their increase of 1.65% is a bit over a third of the rise in inflation (4.7%) since they started raising interest-rates. So on every number they have applied a peashooter and of course there is the issue of them starting too late as to have had any chance of at least reducing the present crisis they would have had to have started last summer.

In many jobs such failure would get you the sack but we know that accountability is only for those lower down the scale not for the elite.Here is Bank of England Governor Andrew Bailey from the 27th of September last year.

Our view is that the price pressures will be transient – demand will shift back from goods to services, global supply chains are likely to repair themselves, and many commodity prices have demonstrated mean reverting tendencies over time.

How much more wrong could he be? He kept ramming it home and the emphasis is mine.

For most members of the MPC, the outlook for the labour market – as I described earlier – is highly uncertain and to some degree likely to be resolved in fairly short order, and this justified a wait and see approach on policy in view of the continuing belief that higher inflation will be temporary

The issue is that this is literally his job. If he were a football manager with a similar performance level he would have been fired months ago. The excuse that it is all the Ukraine war whereas I pointed out when I analysed the speech above that money supply growth was still 8.2% and that as growth looking ahead might not be great inflation was on the menu. It was predictable contrary to the official denials.

What caused it this time?

The factor in play is both especially grim for the worst affected as it is vital and more woe for central bankers who have long tried to dismiss it with their “non-core” theories and rhetoric.

Rising food prices made the largest upward contribution to the change in  the  CPI annual inflation rate between June and July 2022.

There was a particular surge with food prices rising by 2.3% between June and July. In terms of the detail the leader of the pack was oils and fats at 6.8% but fruit lovers got some sort of reward for healthy eating as they rose by a relatively minor 0.7%. Chocoholics may like to know that the category including it rose by 2.7% in July.

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As you can see below food was the main push.

The rise in the annual CPI rate into July 2022 was driven by contributions from 9 of the 12 divisions, with the largest contribution (of 0.32 percentage points) coming from food and non-alcoholic beverages.

In terms of influence on the annual rate the breakdown is below.

Within food, all classes made an upward contribution to the CPI annual rate of inflation. The largest movements came from bread and cereals (0.06 percentage points), milk, cheese and eggs (0.05 percentage points), and vegetables (including tubers), meat, sugar, jam, honey, syrup, chocolate and confectionary, which each contributed 0.04 percentage points to the change in the annual rate.

What does CPI miss?

It ignores owner-occupied housing costs. What are they doing?

UK average house prices increased by 7.8% over the year to June 2022, down from 12.8% in May 2022.

That is quite a change and is such a large one it may be unreliable but what we have had is twenty odd years of house prices soaring. The UK house price index since  the summer of 2003 is below.

was 67. 2 and is now 150.2

Whereas UK CPI

was 75.4 and is now 122.5

So the removal of house prices from the inflation numbers has reduced inflation which is a major reason why our previous main inflation measure has consistently given higher numbers.

The all items RPI annual rate is 12.3%, up from 11.8% last month.

It has been running at around 2% or more higher for much of this recent burst in inflation. Another reason is that it has represented the surge in domestic energy prices more realistically via giving them a higher weight.

But if we stick with owner-occupied housing costs there has more recently been an official effort to mislead on this front. After many years we got this.

Given that the owner occupiers’ housing costs (OOH) component accounts for around 17% of the CPIH, it is the main driver for differences between the CPIH and CPI inflation rates. ……. This makes CPIH our most comprehensive measure of inflation

Not quite because that 17% assumes that owners  pay rent. Imagine if as well as a purchase price paid by a combination of a lump sum and monthly mortgage payments you had to pay rent too! Who would do that? It is a convenient fantasy though because look what it allows them to do to inflation.

Private rental prices paid by tenants in the UK rose by 3.2% in the 12 months to July 2022, up from 3.0% in the 12 months to June 2022.

Yes some 17% of their “most comprehensive measure of inflation” is only rising at 3.2% thus nicely reducing the inflation rate to this.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to July 2022, up from 8.2% in June.

So 12.3% becomes 10.1% and the plan was for it to become 8.8%. I think you can spot the trend here! Reality is of course unchanged but perception may be altered. There is another kicker to this which HM Treasury will love which is that these numbers are part of the GDP calculations, so the switch to CPI has boosted it by up to 0.5% annually.

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The cost of living crisis continues to build and is a result of considerable institutional failure. The Bank of England was given independence back in 1997 because politicians were unwilling to make unpopular decisions and thus we saw that increases in interest-rates ended up being larger because they acted too late. If we fast forwards to now we see that the Bank of England has made exactly the same mistake meaning that independence became a facade. One route to this lack of  independence is that every single Deputy Governor has come from HM Treasury. A form of reverse takeover.

Next has been the gerrymandering of the inflation figures. There are supposed to be 4 external figures at the Bank of England but all have been silent on this. If there was any independence someone should have put their hand up.

Can we expect some relief? Petrol and diesel prices should be falling but producer prices are showing only a flicker of any decline.

Producer input prices rose by 22.6% in the year to July 2022, down from a record high of 24.1% in the year to June 2022.

Producer output (factory gate) prices rose by 17.1% in the year to July 2022, up from 16.4% in the year to June 2022; this is the highest the rate has been since August 1977.


The Bank of England, which has been criticised for underestimating the threat of rising inflation, last year paid out bonuses to its staff amounting to more than £23m, the Observer can reveal.

This bonus pot was at its highest level for at least two years, with more than 4,260 employees receiving performance awards.


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